The old continent’s currency took a hard hit this year. Unfortunately, there hasn’t been much support from local policymakers or the economy.
The most actively traded currency pair globally,
EURUSD, slid below $1.05 on Wednesday after better-than-expected economic data from the eurozone. Despite starting the day in positive territory, the euro turned negative following the release of November’s inflation report.
Consumer prices rose 2.2% last month, falling short of the 2.3% consensus but surpassing October’s 2.0% and September’s 1.7%.
Rising inflation doesn’t pose a significant challenge for the European Central Bank, which aims to cut interest rates as much as possible, ideally without exacerbating price pressures. With inflation once again
coming in below expectations, analysts expect the ECB to stay the course on reducing borrowing costs.
Earlier this month, ECB policymakers cut interest rates for the fourth time this year, pledging to continue the rate-cutting efforts to stimulate economic growth. However, lower interest rates weaken the euro, diminishing its appeal for generating returns on deposits.
As if that weren’t enough, following the Federal Reserve’s interest rate decision and its 2025 guidance, the euro shed approximately 1.4% of its value against the greenback.
The headline wasn’t the Fed’s widely anticipated 25-basis-point rate cut — that was already priced in. Instead, markets were caught off guard by the Fed’s 2025 forecast. Fed Chair Jerome Powell and his team predicted just two more rate cuts next year, disappointing investors who had hoped for a more aggressive easing cycle.
Two additional 25-basis-point cuts in 2025, assuming steady economic growth and a strong labor market, would lower the target range to 3.75 %-4 %.
Market reactions were swift:
the US dollar index surged, gold prices dropped 1% from $2,645 to $2,610 per ounce, and major Wall Street indexes — S&P 500, Dow Jones, and Nasdaq Composite — each fell about 0.5%.
This article was written by FL Contributors at
www.forexlive.com.
